Alliance trusts in cash amid turmoil

One of Britain's most high-profile fund managers has opted to "sit on the sidelines" in cash as a result of the ongoing market turmoil sparked by the credit crunch.

Katherine Garrett-Cox – nicknamed Katherine the Great – has substantially increased the portion of cash held by Alliance Trust, the biggest generalist investment trust in Britain, because of the effects of the crunch.

Ms Garrett-Cox, Alliance Trust's chief investment officer, said the decision had been prompted by the market turmoil, and cash holdings could be increased over the coming months.

At the end of last year, Alliance was 4.8 per cent geared, but that has been unwound, leaving the £2.26bn investment trust with a net cash position of 1.5 per cent of its assets available for investment by the middle of this month.

Ms Garrett-Cox said the company still believes there are "issues to work through" due to the crunch, which has paralysed the world's financial system and led to a £50bn bail-out of Britain's banks, announced on Monday.

She believes that now is not the right time to "increase our exposure, particularly to UK equities". However, she has said Alliance could dip into the markets where it sees opportunities to take positions in undervalued companies due to the market turbulence.

The investment trust has the ability to gear up with debt again when it believes market conditions make it attractive to do so.

Ms Garrett-Cox's words will carry weight because of her formidable reputation in fund management circles.

She joined Alliance Trust from Morley Fund Management – the asset management arm of the insurer Aviva – early last year.